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Labrary 

OF  THE 

University  of  NortH  Carolina 

This  hook  was  presented  by 

tn.CTepV.of  O^nc-utkove^ 


THE  BULLETIN 

O  F  TH  E 

NORTH  CAROLINA  DEPARTMENT  OF  AGRICULTURE 

RALEIGH 


MAY,  1923 


FARM  CREDIT  IN  NORTH 

CAROLINA 

A  SURVEY  OF  800  FARMS 

By 

FRED  R.  Y'ODER,  N.  C.  Division  of  Markets 
H.  S.  BEARDSLEY,  U.  S.  Dept,  of  Agriculture 
A.  J.  HONEYCUTT,  U.  S.  Dept,  of  Agriculture 


PUBLISHED  MONTHLY  AND  SENT  FREE  TO  CITIZENS  ON  APPLIC  ATION 

Entered  at  the  Postoffice  at  Raleigh,  .N.  C.,  as  second-class  matter, 
February  7,  1901,  under  Act  of  June  6,  1900. 


Digitized  by  the  Internet  Archive 
in  2019  with  funding  from 
University  of  North  Carolina  at  Chapel  Hill 


https://archive.org/details/farmcreditinnortOOyode 


SUMMARY 


A  sum  ey  of  800  farms  in  three  sections  of  Aorth  Carolina  established 
the  following  facts  regarding  credit  conditions  in  1921 : 

1.  Moie  than  half  of  all  credit  obtained  for  current  expenses  was 
advanced  by  stores  and  less  than  one-sixth  by  banks.  Advances  from 
landlords  to  tenants  was  almost  equal  to  all  short-term  bank  advances 
to  farmers. 


2.  More  than  half  of  all  credit  obtained  for  long-term  purposes  on 
land  mortgage  security  came  from  individuals.  Commercial  banks  fur¬ 
nished  not  quite  one-fifth. 

3.  The  average  rate  of  interest  charged  for  short-term  advances  from 
banks  was  6.3  per  cent,  as  compared  with  26.6  per  cent  from  stores.  For 
mortgage  loans  the  rate  from  banks  was  6  per  cent  even,  as  compared 
with  6.1  per  cent  charged  by  individuals. 

4.  Collateral  was  required  for  less  than  5  per  cent  of  the  short-term 
advances  made  by  banks,  whereas  more  than  40  per  cent  of  the  advances 
from  stores  were  fully  secured. 

5.  From  the  foregoing  it  is  evident  that  farmers  would  profit  by  get¬ 
ting  more  of  their  credit  from  banks  and  paying  their  store  bills  with 
cash,  if  possible.  Two  means  will  be  useful  toward  accomplishing  this 
end : 

(a)  Farmers  may  form  credit  unions  and  get  funds  by  cooperative 
effort  as  explained  briefly  in  this  bulletin. 

( b )  Both  bankers  and  farmers  can  work  toward  a  better  contact.  In 
this  way  bankers  obtain  a  first-hand  knowledge  of  prospective  borrowers, 
which  they  often  prefer  to  collateral  security  for  loans,  and  wjiich  en¬ 
ables  them  better  to  know  and  to  meet  the  farmers'  needs. 

6.  More  legumes  and  livestock  on  the  farm  and  the  growing  of  food 
and  feed  crops  will  help  in  reducing  the  need  for  the  more  expensive 
merchant  credit. 


FARM  CREDIT  IN  NORTH  CAROLINA 


A  SURVEY  OF  800  FARMS 


Fred  R.  Yoder — Specialist  in  Rural  Credits,  Division  of  Markets,  North 
Carolina  Experiment  Station  and  Extension  Service. 

H.  S.  Beardsley — Junior  Economist,  Bureau  of  Agricultural’  Economics, 
U.  S.  Department  of  Agriculture,  and 

A.  J-  Honey'cutt— Field  Agent,  Bureau  of  Agricultural  Economics,  United 
States  Department  Agriculture. 


North  Carolina  farmers,  according  to  conservative  estimates,  contract 
debts  amounting  to  more 'than  $200,000,000  annually,"  or  an  average  of 
more  than  $500  for  every  farmer  in  the  State.  The  question  of  farm 
credit,  therefore,  is  an  exceedingly  important  one.  A  difference  of  one 
per  cent  in  the  average  interest  rate  for  instance  would  affect  the  net 
income  from  agriculture  to  an  amount  approximating  $2,000,000  each 
year. 

Interest  rates  incidentallv  constitute  only  a  small  part  of  the  farmer's 
credit  problem.  Often  he  is  unable  to  get  credit  at  all,  unable  to  get  it 
when  the  use  of  a  judicious  amount  of  borrowed  money  might  help  him 
greatly  to  increase  his  production  and  change  the  results  of  his  farming 
operations  from  loss  to  profit.  Frequently  he  cannot  get  the  term  on  his 
loan  which  will  meet  his  needs.  Perhaps  he  may  be  able  to  borrow  for 
a  term  of  six  months  only,  when  he  requires  a  year  for  the  growing  and 
orderly  marketing  of  his  crop. 

Evidently  the  conditions  under  which  farmers  obtain  credit  will  have 
a  marked  influence  on  the  success  of  farming  operations.  For  such  con¬ 
ditions  to  be  most  satisfactory,  three  things  are  necessary:  (1)  correct 
credit  legislation,  (2)  efficient  use,  by  credit  agencies,  of  facilities  offered 
by  such  legislation,  and  (3)  an  understanding  of  the  credit  situation  by 
farmers  themselves. 

None  of  these  things  are  possible  without  the  possession  of  facts.  To 
obtain  such  facts  a  farm  to  farm  survey,  coupled  with  a  survey  of  banks 
and  stores  was  made  in  the  summer  of  1922.  Records  from  S00  fanneis, 
twenty  banks  and  fifty-two  stores  were  obtained.  The  work  was  done  in 
sections  of  three  counties,  each  section  being  considered  as  typical  for 
larger  portions  of  the  State.  (Fig.  1.) 


*  Estimated  total  mortgage  $50,000,000,  more  than  one-fifth  of  which  is  contracted  each 
Mortgage!  |w>o£ 0T0  “aXf'm.OO^ “ooo"  2S&.S  ll80.000.Mot  to.al,  $250,000,000. 


4 • 


G  The  Bulletin,  May,  1923 


Farm  Credit  in  Worth  Carolina 


7 


Results  of  the  survey  are  summarized  briefly  in  this  bulletin.  Signifi¬ 
cant  figures  are  given  regarding  the  credit  situation,  showing  the  amount 
of  debts  contracted  and  the  terms  under  which  money  was  borrowed. 
Fiom  these  figures  conclusions  are  drawn  and  any  suggestions  made 
which  the  figures  seem  to  warrant. 

The  plan  of  the  survey  was  to  make  all  data  as  specific  as  possible. 
Thus  each  faimei,  banker,  or  storekeeper  was  asked  questions  regarding 
his  own  business  and  not  for  estimates  regarding  conditions  in  his  com¬ 
munity  in  general.  Each  farmer  was  asked  how  much  money  he  had 
borrowed  in  1921,  or  how  much  he  had  bought  on  time,  from  "whom  he 
received  such  credit,  what  security  he  was  required  to  give,  what  rate 
of  interest  he  had  to  pay,  and  similar  questions  on  which  he  would  be 
able  to  give  specific  replies.  There  were  a  few  cases  in  which  farmers 
did  not  remember  all  their  credit  transactions  in  1921,  and  in  a  few 
instances  they  were  hazy  regarding  individual  points,  such  as  the 
exact  term  of  their  loan,  commission  paid  for  it,  etc.  In  general, 
however,  a  summary  of  these  replies  is  believed  to  be  a  fairly  accu¬ 
rate  index  of  farm  credit  in  the  State. 

Records  from  banks  and  stores  served  as  a  check  on  the  statements  of 
the  farmers.  All  country  bank  cashiers"  and  all  store  managers  in  each 
county  were  interviewed  while  farm  records  were  taken  from  within 
township  limits  only.  It  was  thought  better  to  use  a  small  area  for  this 
and  to  interview  every  man  in  that  area  than  to  take  in  so  much  territory 
that  only  a  small  proportion  of  the  farmers  would  he  reached.  In  the 
latter  case  it  might  be  that  not  all  classes  of  farmers  would  be  repre¬ 
sented.  Five  hundred  farmers  in  two  townships  of  Wake  County,  150 
in  two  townships  of  Alleghany  County,  and  150  from  one  township  of 
Scotland  County  were  interviewed.  These  areas  in  which  surveys  were 
made  are  indicated  on  the  accompanying  map.  For  convenience  these 
areas  will  hereafter  be  referred  to  as  the  Wake  County  area,  Alleghany 
County  area,  and  Scotland  County  area. 

The  Wake  County  area  is  representative  of  the  tobacco-cotton  pied¬ 
mont  section  of  the  State,  so-called  because  these  two  crops  are  the  chief 
source  of  farm  income.  The  land  is  rolling,  somewhat  sandy,  and  the 
chief  crops  are  tobacco,  cotton  and  corn,  with  a  minimum  of  small  grain 
and  livestock.  According  to  the  1920  census  69.2  per  cent  of  the  farmers 
in  the  county  are  native  white,  and  30.8  per  cent  colored;  43.9  per  cent 
are  owners  and  55.6  per  cent  tenants.  Ihere  are  thirteen  small  to\\ns 
and  villages  in  the  county,  all  well  supplied  with  stores,  and  nine  sup¬ 
porting  one  or  more  country  banks.  Raleigh,  the  county-seat  and  capital 
of  the  State,  is  easily  accessible  from  all  parts  of  the  county. 

The  second  area  was  chosen  in  Alleghany  County,  one  of  the  western 
mountain  counties,  because  it  represents  one  extreme  in  agricultural 
methods  and  conditions.  Almost  90  per  cent  of  all  farms  are  operated 

*  Banks  and  stores  in  the  city  of  Raleigh  were  not  included  in  the  survey. 

3 


8 


The  Bulletin,  May,  1923 


by  owners  and  the  farming  is  of  a  self-sufficing  type,  with  a  large  pro¬ 
portion  of  grain  and  livestock.  The  country  is  very  rugged  and  has 
poor  roads,  with  the  exception  of  one  main  highway.  Sparta,  the  county- 
seat,  is  the  only  village.  It  has  a  population  of  159,  supporting  one 
bank,  three  general  stores,  a  garage  and  a  small  printing  office.  Much 
of  the  trading  in  the  county  is  done  at  cross-roads  stores,  of  which  there 
are  between  20  and  30  scattered  throughout  the  county.  Nearly  all 
farmers  are  native  whites. 

Scotland  County  represents  the  other  extreme,  with  80  per  cent  of  the 
farm  operators  tenants  and  with  most  of  the  land  devoted  to  cash  crops, 
principally  cotton.  Nearly  two-thirds  of  the  farmers  are  colored,  most 
of  them  renting  on  shares  from  owners  of  large  plantations.  The  land 
is  level  and,  though  sandy,  is  very  productive.  Laurinburg,  the  couutv- 
seat,  and  five  smaller  towns  supply  the  trade  centers  for  the  county,  with 
occasional  country  stores  located  at  principal  cross-roads  points.  Com¬ 
missaries  operated  by  owners  of  large  plantations  furnish  many  of  the 
supplies  needed  by  tenants  and  croppers.  Seven  banks,  three  in  Laurin¬ 
burg,  two  in  Gibson,  and  one  each  in  Wagram  and  Laurel  Hill,  con¬ 
stitute  the  chief  cash  credit  agencies.  The  practice  of  buying  supplies 
from  merchants  on  time  is  prevalent,  especially  among  tenants  and 
croppers. 

Tor  the  purpose  of  analysis,  farmers’  credit  was  divided  into  three 
classes :  mortgage  loans,  cash  loans  and  merchant  advances. 

Mortgage  credit  is  best  adapted  for  long-term  loans,  in  connection  with 
the  purchase  of  land,*  the  building  of  permanent  improvements  and 
similar  purposes  in  which  the  turnover  on  borrowed  money  is  low.  Land 
is  a  stable  form  of  security  and  mortgages  attract  investors  who  are 
looking  for  conservative  long-time  investments. 

Cash  loans  are  those  made  for  all  current  operating  and  living  ex- 
jienses  where  actual  cash  or  an  equivalent  bank  balance  is  received  by 
the  borrower.  In  such  cases  the  borrower  is  generally  at  liberty  to  spend 
the  cash  where  he  pleases  and  in  this  way  to  purchase  on  a  competitive 
market. 

Merchant  credit  covers  much  the  same  field  as  the  short-term  cash 
loans  except  that  the  debtor  does  not  receive  any  cash.  He  is  allowed 
to  buy  his  supplies  from  the  merchant  “on  time.”  The  merchant  may 
merely  carry  this  account  on  his  books,  or  he  may  demand  a  note.  In 
the  latter  case,  the  customer  frequently  pledges  all  his  assets  and  is  thus 
prevented  from  obtaining  credit  at  any  other  store.  He  is  therefore  at 
the  mercy  of  the  merchant  with  reference  to  price. 

The  following  table  shows  what  portion  of  farmers’  debts  in  the  three 
districts  before  mentioned  were  contracted  on  each  of  the  three  plans, 
mortgage,  short-term  cash,  and  merchant : 


Farm  Credit  in  ISTorth  Carolina 


9 


Table  1 — Percentage  Distribution  of  Credit  According  to  Type  of  Selected 

Areas  in  North  Carolina,  1921 


All  Sections 

WTake 

Alleghany 

Scotland 

Total  Indebtedness . . . .  ..  _ 

Per  Cent 
100.0 

Per  Cent 

100.0 

Per  Cent 
100.0 

Per  Cent 
100.0 

Mortgage _  _  _  ..  _  . . 

57.2 

68.2 

51.5* 

9.9 

Short-Term  Cash _  .  . . 

10.9 

8.3 

34.9 

11.0 

Merchant _  .  ..  ..  _  .  _  _ 

31.9 

23.5 

13.6 

79.1 

The  mortgage  figures  represent  the  amount  outstanding  at  the  end  of 
1921.  Other  types  of  credit  include  amounts  borrowed  during  the  year. 


MORTGAGE  LOANS 

The  major  part  of  the  credit,  as  Table  1  illustrates,  was  secured  by 
land  mortgages.  Most  of  this  credit  was  used  for  the  purchase  of  land 
(see  Table  9),  the  usual  case  being  that  in  which  part  payment  was  made 
on  a  farm  and  a  mortgage  drawn  to  cover  the  rest  of  the  purchase  price. 

Of  the  800  farmers  interviewed,  380  were  owners  of  farm  land  and 
consequently  were  in  position  to  obtain  mortgage  credit  it  tlie\  desiied 
it.  Ninety-four  of  them  had  one  or  more  mortgages  on  their  land,  the 
total  number  of  mortgages  being  104,  including  9 a  first  moitgages,  8 

second  mortgages,  and  1  third  mortgage. 

More  complete  information  regarding  the  extent  of  mortgage  indebt¬ 
edness  is  found  in  Table  2. 


Table  2 —Number  of  Farmers  Having  Land  Encumbered  and  Ratio  of  Debt  to 


All  farmers. 
White  — 
Colored. _ 


Wake  County. 

White . . 

Colored - 


Alleghany  County. 

White - 

Colored - 


Scotland  County . 

White . 

Colored... . 


Farmers 


Number 

380 

335 

45 

227 

196 

31 

119 

111 

8 

34 

28 

6 


With 
Mortgages 


Number 

94 

77 

17 

70 

53 

17 

20 

20 

0 

4 

4 

0 


*  One  man  has  2  first  mortgages  each  on  a  separate  tract  of  land 


Writh 

Mortgages 

Value  of 
Land 

Mortgaged 

Amount  of 
Mortgage 
Debt 

Per  Cent 

Dollars 

Dollars 

24.7 

543,008 

203,141 

22.9 

486,673 

181,386 

37.8 

56,335 

21,755 

30.8 

402,673 

182,657 

27.0 

346,338 

160,902 

54.8 

56,335 

21,755 

•16.8 

88,485 

14,621 

18.0 

88,485 

14,621 

11.8 

51,850 

5,863 

14.3 

51,850 

5,863 

separate  tract  of  land. 

Ratio 
of  Debt 
to  Value 


Per  Cent 
37.4 

37.3 
38.6 

45.4 

46.5 

38.6 

16.5 

16.5 


11.3 

11.3 


10 


The  Bulletin,  May,  1923 


Each  farmer  landowner  interviewed  operated  all  or  part  of  his  land 
himself,  hut  in  a  large  number  of  cases,  some  land  was  rented  out  to 
tenants  and  croppers.  Sometimes  the  mortgage  covered  only  that  part 
of  the  land  which  the  owner  operated;  at  other  times  it  covered  only 
the  land  operated  by  tenants;  while  in  the  majority  of  cases,  it  covered 
an  entire  plantation,  being  distributed  over  the  owner-operated  and 
tenant-operated  land,  in  amounts  corresponding  with  the  respective 
values  of  the  different  tracts.  Table  3  gives  the  amount  of  mortgage 
and  its  ratio  to  the  value  of  the  land  under  the  different  forms  of 
tenure.  It  should  be  noted  that  in  this  table  the  mortgage  debt  is  com¬ 
pared  with  the  value  of  all  farms  surveyed  instead  of  with  the  value  of 
mortgaged  farms  only,  as  was  done  in  Table  2. 


Table  3 — Ratio  of  Debt  to  Total  Value  of  Farms  Surveyed  in  Selected  Areas 

of  North  Carolina,  1921 


All  Land 

Owner-Operated  Land 

Tenant-Operated  Land 

Value 

Mortgage 

Debt 

Per 

Cent 

V  alue 

M  ortgage 
Debt 

Per 

Cent 

V  alue 

Mortgage 

Debt 

Per 

Cent 

Dollars 

Dollars 

Dollars 

Dollars 

Dollars 

Dollars 

All  land _ 

3,065,993 

203,141 

6.6 

2,391,113 

163,619 

6.9 

674,880 

39,522 

5.9 

Wake  County..  .. 

1,607,779 

182,657 

11.4 

1,244,449 

148,183 

11.9 

363,330 

34,474 

9.5 

Alleghany  County. 

740,062 

14,621 

2.0 

687,962 

13,500 

2.0 

52,100 

1,121 

2.2 

Scotland  County... 

718,152 

5,863 

.8 

458,702 

1,936 

.4 

259,450 

3,927 

1.5 

In  1921  and  the  early  part  of  1922  farmers  seemed  hard-pressed  for 
satisfactory  agencies  to  handle  all  the  mortgage  credit  which  they  felt 
was  needed.  More  than  half  of  the  money  borrowed  was  obtained  from 
neighbors  and  local  business  men,  or  in  case  of  the  purchase  of  a  farm 
where  part  payment  was  made,  from  the  former  owner.  Of  regular 
credit  agencies,  local  banks  were  first  in  importance,  handling  not  quite 
one-fifth  of  the  total  loans,  while  banks  of  the  Eederal  Earm  Loan 
System  and  insurance  companies  followed  in  order.  Table  4  shows 
the  part  played  by  each  agency  in  each  area  surveyed. 

Many  farmers,  desiring  long-term  credit,  had  been  unable  to  get  it. 
In  Wake  County  this  was  decidedly  true.  Some  of  those  who  wanted 
credit  had  applied  to  the  Federal  Land  Bank  at  Columbia,  South  Caro¬ 
lina,  and  were  waiting  for  decisions  on  their  applications,  but  the  bank 
was  so  rushed  that  action  was  necessarily  slow. 

In  Alleghany  County  practically  three-fourths  of  the  money  borrowed 
was  from  individuals.  In  this  county  the  farmers  themselves  had  an 
unusual  supply  of  loanable  funds,  which  they  were  ready  and  willing 
to  loan  on  local  mortgage  security. 

In  Scotland  County  most  of  the  land  is  in  the  hands  of  large  owners, 
nearly  all  of  whom  have  good  credit  standing  with  the  local  banks  and 
who  have  learned  to  depend  upon  those  banks  for  all  their  credit  needs. 


Farm  Credit  in  North  Carolina 


11 


Table  4- Percentage  Distribution  of  Mortgage  Loans  ly  Source  in  Selected 


Borrowers 


All  owners _ 

White _ 

Colored _ 

Wake  County _ 

White _ 

Colored _ 

Alleghany,  White  owners.. 
Scotland,  White  owners _ 


Total 

Individuals 

Commercial 

Banks 

Federal 

Land 

Banks 

Insurance 

Companies 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

100 

55.9 

19.6 

15.3 

6.3 

100 

53.6 

21.5 

15.4 

7.0 

100 

75.2 

3.7 

15.2 

100 

56.3 

16.9 

17.1 

6.5 

100 

53.7 

18.7 

17.4 

7.4 

100 

75.2 

3.7 

15.2 

100 

72.6 

27.4 

100 

3.4 

83.6 

13.0 

Others 


Per  Cent 

2.9 
2.5 

5.9 
3.2 
2.8 
5.9 


.  r  A  ;  m  column 

tist  Orphanage  and  two  local  stores. 


a  Bap- 


Wake  County  is  typical  of  the  North  Carolina  piedmont  section 
where  the  land  is  divided  into  small  holdings.  The'  demand  for  land 
credit  is  great.  As  was  mentioned,  the  farmers’  demands  have  not  yet 
been  satisfied,  but  much  outside  capital  has  come  in  lately  and  promises 
to  relieve  conditions  somewhat.  Five  farm  loan  associations  were  active 
in  the  county  in  August,  1922,  and  a  joint  stock  land  bank  opened  its 
offices  in  Raleigh  in  June.  In  addition,  large  out-of-state  interests  had 
placed  several  million  dollars  in  the  hands  of  local  agents  to  be  loaned 
on  North  Carolina  farm  mortgages  at  5  per  cent  interest,  plus  commis¬ 
sion  and  attorney  fees.  L  ndoubtedlv  much  of  this  money  was  kept  in 
Wake  County. 

With  these  various  sources  of  credit  present,  the  question  naturally 
arises  as  to  which  offers  the  most  advantageous  terms  to  the  farmer. 
Some  idea  of  this  may  be  gained  from  Table  5  in  which  the  average 
interest  rates  required  by  various  types  of  lenders  are  compared. 


Table  5 — Average  Interest  Rate  Paid  on  Mortgages  to  Various  Agencies  in 

Selected  Areas  of  North  Carolina ,  1921 


Borrower 

All 

Sources 

Individual 

Commercial 

Bank 

Federal 

Land 

Bank 

Insurance 

Companies 

Others 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  owners _ _  _  _  . 

6.1 

6.1 

6.0 

5.5 

6.0 

6.2 

White _  .  .  .  _ 

6.1 

6.1 

6.0 

5.5 

6.0 

6.0 

Colored 

6.2 

6.1 

6.0 

5.5 

6.9 

The  average  interest  rate  for  104  mortgages  in  6.1  per  cent  in  a 
State  which  has  a  law  prohibiting  a  charge  of  more  than  6  per  cent. 
Banks  and  mortgage  companies,  as  the  table  shows,  keep  within  the  law, 
while  scattered  individuals  are  willing  to  take  chances,  thus  handling 


12 


The  Bulletin,  May,  1923 


tlie  loans  which  are  not  acceptable  to  hanks.  If  all  costs  to  the  borrower 
are  included,  even  the  local  bank  charges  will  he  found  to  exceed  6 
per  cent,  due  to  the  custom  of  charging  interest  in  advance  on  loans, 
making  the  interest  rate  about  0.4  per  cent  higher  than  it  would  be  if 
interest  were  collected  at  the  end  of  the  year.  Fifty-six  and  seven-tenths 
per  cent  of  the  money  loaned  on  mortgages  by  banks  was  advanced  on 
this  plan.  About  one-twentieth  of  the  money  advanced  by  individuals 
drew  interest  in  advance. 


Table  6 — Percentage  of  Borrowers  Reporting  Extra  Charges  by  the  Various 
Sources  on  Mortgages  in  Selected  Areas  of  North  Carolina,  1921 


All 

Sources 

Individual 

Commercial 

Bank 

Federal 

Land 

Bank 

Insurance 

Companies 

Others 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  owners _ _ _  .  .  _ 

23.1 

11.8 

20.0 

100.0 

60.0 

25.0 

White _ 

21.7 

6.8 

22.2 

100.0 

60.0 

50.0 

Colored.  .  . .  . . 

29.3 

29.4 

0 

100.0 

0 

Commission  charges  and  attorneys’  fees  will  also  add  somewhat  to 
the  cost  of  borrowing  money.  The  farmers  were  asked  whether  they 
had  paid  such  fees  and  the  result  of  their  replies  is  shown  in  Table  6. 
According  to  the  table,  about  one  borrower  in  four  paid  an  extra  charge 
of  some  sort,  but  there  were  undoubtedly  many  who  paid  such  charges 
without  recognizing  them,  so  that  the  figure  should  be  somewhat  higher 
than  shown. 


Table  7 — Ratio  of  Extra  Charge  to  Principal  Borrowed  from  Various  Agencies 

in  Selected  Areas  of  North  Carolina ,  1921 


All 

Sources 

Individual 

Commercial 

Bank 

Federal 

Land 

Bank 

Insurance 

Companies 

Others 

All  owners  _ _ 

Per  Cent 

3.35 

2.79 

6.90 

Per  Cent 
3.92 

2.28 

5.67 

Per  Cent 
4.66 

4.66 

Per  Cent 

5.09 

4.25 

10.15 

Per  Cent 
2.16 

2.16 

Per  Cent 
8.0 

8.0 

White _ _ 

Colored  _  .  _ 

In  those  cases  where  the  charge  was  known,  the  average  amount  was 
found  to  be  equal  to  3.35  per  cent  of  the  principal,  ranging  from  8  per 
cent  for  real  estate  companies  to  2.16  per  cent  for  insurance  companies. 
This  percentage  represents  a  lump-sum  payment  and  must  not  be  con¬ 
fused  with  yearly  interest  rates.  Table  7  gives  the  charges  for  all 
sources.  Land  bank  loans  show  a  proportionally  high  initial  cost,  ac¬ 
cording  to  the  table,  but  when  this  is  distributed  over  a  thirty-three 
year  period,  the  annual  charge  is  found  to  be  quite  small.  One  of  the 


Farm  C  redit  in  North  Carolina 


13 


mam  reasons  for  such  charges  by  the  land  banks  is  the  necessity  of  get- 
ing  a  clear  title  to  all  land  on  which  Farm  Loan  money  is  advanced. 

ties  are  frequently  quite  confused  in  North  Carolina  and  the  expense 
o  e  earing  is  often  high.  In  return  for  this  charge,  however,  the 
owner  of  the  land  secures  a  complete  abstract  of  title  to  his  land  and 

this  should  be  ot  value  to  him  m  contracting  future  loans  or  in  case  he 
may  wish  to  sell. 

In  general  it  would  seem  as  if  farmers  could  obtain  mortgage  credit 
more  cheaply  from  land  banks  than  from  any  other  source,  with  insur¬ 
ance  companies  standing  a  close  second.  Local  banks,  individuals  real 
estate  companies  and  stores  follow  in  order. 

No  borrower  will  ever  find  all  of  these  credit  agencies  in  competition, 
owing  to  the  fact  that  they  are  organized  to  meet  different  demands. 
Laml.  banks,  for  instance,  handle  loans  for  the  purchase  of  land  or  for 
building  permanent  improvements  on  which  returns  are  necessarily 
slow.  Local  banks,  on  the  other  hand,  very  properly  object  to  tying  up 
their  funds  for  long  periods.  Table  8  shows  the  various  terms  for  which 
money  was  obtained  from  the  different  sources.  Banks  had  no  loans 
running  more  than  two  years ;  insurance  companies  handled  loans  run¬ 
ning  f i  om  3  to  10  years  and  the  land  banks  took  the  long-term  mort¬ 
gages  for  more  than  10  years.  Individuals  made  loans  for  various 
periods,  although  indications  are  that  they  preferred  mortgages  matur¬ 
ing  in  three  years  and  over. 


Table  8 — Percentage  Distribution  of  Loans  According  to  Term  and  Source  in 

Selected  Areas  of  North  Carolina ,  1921 


Total 

1  year 
or  less 

2  years 

3  to  5 
years 

6  to  10 
years 

Over 

10  years 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  loans..  .  . . . 

100 

16.41 

9.31 

30.34 

23.36 

20.58 

Individuals..  ..  .  ..  ..  _ _ 

100 

9.62 

8.15 

41.84 

36.63 

3.76 

Commercial  Banks. . .  . 

100 

70.08 

29.92 

Federal  Land  Banks.  ....  ..... 

100 

100.00 

Insurance  Companies .  ..  ... 

100 

84.01 

15.99 

Other  sources ..  .-. . .  .. 

100 

44.44 

55.56 

Mortgage  loans  are  supposed  to  be  contracted  to  meet  the  farmer's 
“long-term”  credit  needs,  such  as  the  purchase  of  a  farm  or  the  building 
of  permanent  improvements.  These  were  found  to  be  the  chief  purposes 
for  which  North  Carolina  farmers  contracted  mortgages,  although  there 
were  a  few  farms  mortgaged  to  buy  family  provisions  and  to  pay  cur¬ 
rent  farm  operating  expenses.  Table  9  shows  how  the  money  borrowed 
was  distributed  in  regard  to  purpose. 


14 


The  Bulletin,  May,  1923 


Table  9 — Percentage  Distribution  of  Mortgage  Loans  According  to  Purpose  for 
which  Contracted  in  Selected  Areas  of  North  Carolina,  1921 


Total 

Buy  Land 

Improve¬ 

ments 

Farm 

Expenses 

Living 

Expenses 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cen 

All  owners..  ...  _ _ 

100 

87.07 

9.62 

1.90 

1.39 

White _ 

100 

87.82 

9.77 

1.27 

1.13 

Colored...  .  .  _  _  __ 

100 

79.97 

8.17 

7.90 

3.95 

Wake  County  _  .  .  _ _  . 

100 

85.78 

6.91 

5.75 

1.54 

White _  .  _ _ _  . 

100 

86.46 

6.76 

5.50 

1.26 

Colored  ......  _  _ 

100 

79.97 

8.17 

7.90 

3.95 

Alleghany  County,  White 

100 

99.24 

0.74 

Scotland  County,  White 

100 

100.00 

The  column  “Farm  expenses”  includes  either  those  cases  in  which 
money  was  spent  for  feed,  fertilizer,  livestock,  or  labor,  or  cases  in 
which  farmers  reported  merely  that  the  money  was  used  to  “run  the 
farm.”  “Living  expenses”  include  grocery  bills,  clothing  bills,  and 
doctors’  bills. 

As  would  he  expected,  the  men  who  borrow  money  for  current  ex- 
,  penses  do  not  ask  terms  as  long  as  those  farmers  who  borrow  to  pay 
for  land  and  improvements. 


Table  10 — Percentage  Distribution  of  Mortgage  Loans  According  to  Terms  Re¬ 
quested  for  Various  Purposes  in  Selected  Areas  of  North  Carolina,  1921 


Total 

1  year 
or  less 

2  years 

3  to  5 
years 

6  to  10 

years 

Over 

10  years 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  farms _  _ _ 

100 

16.41 

9.31 

30.34 

23.36 

20.58 

Buy  land ..  . .  .  .  _  _  . 

100 

14.85 

9.46 

32.65 

27.58 

15.44 

Improvements _  _  ... _ 

100 

29.21 

12.98 

3.89 

53.90 

Farm  expense _ _  _ 

100 

62.95 

37.05 

Living  expense... _  .  _ _  _ _ 

100 

43.41 

55.48 

1.11 

SHORT-TERM  CASH  LOANS 

In  an  enterprise  which  is  as  seasonal  in  character  as  farming,  short¬ 
term  credit  is  generally  considered  quite  necessary.  In  tobacco  and  cot¬ 
ton  sections  nearly  all  income  is  received  when  the  crop  is  sold  at  the 
end  of  the  year.  Expenses,  on  the  other  hand,  must  be  met  throughout 
the  year  and  few  farmers  are  able  to  accumulate  enough  to  finance  the 
growing  of  a  crop  with  their  own  funds.  The  demand  for  credit  which 
is  thus  created  may  be  filled  in  either  of  two  ways:  cash  mav  be 
borrowed  and  bills  paid  with  the  money;  or  supplies  may  be  purchased 
on  credit  and  paid  for  at  the  end  of  the  year. 


Farm  Credit  in  North  Carolina  15 

The  latter  form,  “merchant  credit,  ’  is  more  expensive  and  unfor¬ 
tunately  more  prevalent  in  North  Carolina  than  the  practice  of  borrow¬ 
ing  cash.  Only  155  of  the  800  farmers  interviewed  for  this  study  bor¬ 
rowed  cash  during  the  year  1921,  while  433,  or  more  than  one-half  of 
the  total  number  used  the  more  expensive  method  of  merchant  credit 
in  meeting  their  needs.  Merchant  credit  will  be  discussed  more  fully 
later. 

Table  11  shows  the  amount  of  cash  borrowed  in  the  various  sections 
of  the  State  and  by  various  classes  of  operators.' 


Table  11 — Percentage  of  Farmers  Using  Short-Term  Cash  Loans  and  Average 
Amount  Borrowed  in  Selected  Areas  of  Forth  Carolina,  1921 


TOTAL 

WAKE 

COUNTY 

ALLEGHANY 

COUNTY 

SCOTLAND 

COUNTY 

Farmers 

borrow¬ 

ing 

money 

Average 

amount 

borrowed 

F  armers 
borrow¬ 
ing 

money 

Average 

amount 

borrowed 

Farmers 

borrow¬ 

ing 

money 

Average 

amount 

borrowed 

Farmers 

borrow¬ 

ing 

money 

Average 

amount 

borrowed 

Per  Cent 

Dollars 

Per  Cent 

Dollars 

Per  Cent 

Dollars 

Per  Cent 

Dollars 

All  farmers _ 

19.4 

249.83 

22.6 

196.74 

16.7 

397.28 

11.3 

385.88 

White _ 

21.6 

281.00 

25.4 

209.98 

15.0 

460.38 

13.6 

627.77 

Colored _ 

13.1 

108.46 

13.4 

116.43 

40.0 

66.00 

9.5 

113.75 

All  Owners . 

18.7 

360.48 

19.1 

277.79 

17.6 

464.28 

20.6 

557.14 

White  _  -- 

19.1 

386.40 

20.4 

287.37 

16.2 

529.72 

21.4 

616.66 

Colored-. _ _ 

15.5 

123.43 

9.7 

150.00 

37.5 

71.31 

16.7 

200.00 

All  Tenants . 

20.0 

156.31 

25.6 

146.95 

12.9 

45.75 

8.6 

266.00 

White _  -- 

25.0 

174.23 

30.8 

155.68 

10.7 

44.33 

7.9 

650.00 

Colored- . - 

12.5 

103.47 

14.8 

108.69 

50.0 

50.00 

9.0 

101.42 

Apparently  the  proportion  of  farmers  using  this  method  is  much 
higher  among  the  whites  than  the  colored.  It  is  higher  among  tenants 
than  among  owners,  but  the  size  of  (loans  made  to  owners  is  larger  on 
the  average.  In .  Scotland  County  the  proportion  of  cash  borrowers  is 
lower  than  in  either  of  the  other  sections,  much  of  this  being  flue 
undoubtedly  to  the  fact  that  there  are  so  many  colored  croppers  in  that 
section.  There  croppers  have  no  credit  standing  with  the  regular  credit 
institutions.  Even  when  colored  farmers  have  been  found  to  borrow 
cash  for  short  terms,  less  than  one-fourth  of  them  have  received  accom¬ 
modation  from  banks,  whereas  practically  two-thirds  of  the  amount 
borrowed  by  white  farmers  was  from  that  source.  (Table  12.) 

More  than  three-fifth  of  all  money  borrowed  on  short-term  loans  was 
obtained  from  banks,  while  private  individuals,  including  landlords, 
who  make  cash  advances  to  tenants,  furnished  practically  all  ot  the 
remainder.  Insurance  companies,  lending  on  policies,  and  credit  unions 
were  the  only  other  sources  and  the  loans  of  both  combined  constituted 
less  than  3  per  cent  of  total.  Table  12  shows  from  what  sources  money 

was  obtained. 


16 


The  Bulletin,  May,  1923 


Table  12 — Percentage  of  Short-Term  Cash  Credit  by  Sources  in  Selected  Areas 

of  North  Carolina,  1921 


Total 

Bank 

Insurance 

Companies 

Credit 

Unions 

Landlords 

Individuals 
Other  Than 
Landlords 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  farmers-..  .  ------ 

100 

61.43 

1.28 

1.65 

5.69 

29.95 

White  -  -- 

100 

64.69 

1.39 

3.92 

30.00 

Colored.  .  ... 

100 

23.05 

21.07 

26.44 

29.44 

All  owners . . 

100 

60.43 

1.17 

38.40 

All  tenants  .  _ _  ..  . 

100 

63.39 

1.48 

4.87 

16.77 

13.49 

Wake  County . 

100 

59.44 

2.23 

2.88 

7.75 

27.70 

Alleghany  County.  . 

100 

55.61 

44.39 

Scotland  County  _ 

100 

76.98 

7.31 

15.71 

Practically  all  classes  of  lenders  seemed  to  consider  character  of  more 
importance  than  tangible  security.  Only  12  per  cent  of  the  loans  made 
were  based  on  such  security  and  in  the  case  of  nearly  half  of  these  loans 
the  security  existed  as  the  result  of  statutory  provisions,  rather  than 
from  special  contract.  The  North  Carolina  Landlord  Lien  Law  auto¬ 
matically  gives  the  landlord  a  crop  lien  for  !  practically  all  advances 
made  to  his  tenants.  Among  the  banks,  more  than  95  per  cent  of  the 
money  advanced,  was  loaned  without  any  collateral  being  required.  In 
the  case  of  landowners,  the  borrower’s  personal  note  was  generally  con¬ 
sidered  sufficient,  while  for  tenants,  endorsement  by  a  second  party, 
usually  his  landlord  was  required. 


Table  13 — Percentage  Distribution  of  Short-Term  Cash  Credit  According  to 
Form  of  Security  and  Source  in  Selected  Areas  of  North  Carolina,  1921 


Total 

Personal 

Note 

Endorsed 

Note 

Chattel 

Mortgage 

Crop 

Lien 

Combi¬ 

nation 

Stocks 

Banks, 

etc. 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  loans . . -  _ 

100 

50.97 

37.02 

3.74 

5.26 

.32 

2.57 

Bank _ _ _  .. 

100 

49.79 

45.80 

1.68 

.63 

2.10 

Life  Insurance  Co _  - 

100 

100.00 

*Credit  Union...  _ 

100 

33.59 

* 

66.41 

* 

* 

Landlord _ _ 

100 

27.25 

67.07 

5.68 

Other  Individuals _  _ _ 

100 

61.08 

29.65 

5.39 

3.88 

*  The  small  number  of  credit  union  advances  included  in  the  survey  fail  to  give  a  repre¬ 
sentative  idea  of  typical  credit  union  transactions.  According  to  authentic  information  a 
large  proportion  of  these  loans  are  on  crop  liens  and  endorsed  notes. 


In  Alleghany  County  practically  all  loans  were  made  on  personal  and 
endorsed  notes.  This  is  to  be  expected  as  almost  half  of  the  advances 
are  made  from  one  neighbor  to  another,  the  borrower’s  word  being  highly 
respected  by  the  lender.  The  largest  part  of  the  remainder  is  from 
banks  to  landoAvners  whose  character  is  well  known  to  the  local  banker. 


Farm  Credit  in  Xorth  Carolina 


IT 


The  late  of  interest  charged  on  cash  loans  does  not  seem  to  vary 
much  betv  een  classes  of  lenders.  In  table  14,  insurance  companies 
appear  to  furnish  credit  more  cheaply  than  any  of  the  others,  but  the 
number  of  loans  included  in  this  class  is  so  small  as  to  make  the 
resulting  figure  of  minor  significance. 


Table  14  Average  Rate  of  Interest  Charged  by  Various  Agencies  for  Short- 
Term  Cash  Loans  in  Selected  Areas  of  North  Carolina,  1921 


All  Loans 

Bank 

Insurance 

Companies 

Credit 

Union 

Landlord 

Other 

Individuals 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  farmers  __ . .  . 

6.34* 

6.23 

5.29 

6.00 

8.68 

6.26 

White. _ _ 

6.24 

6.24 

5.29 

9  45 

6  16 

Colored..  _  . 

6.89 

6.07 

6.00 

8.35 

7  34 

All  owners  .  . 

6.13 

6.08 

4.50 

6.22 

All  tenants  ..  . 

6.51 

6.46 

6.00 

6.00 

8.68 

6.51 

Wake  County _  _ 

6.28 

6.27 

5.29 

6.00 

8.24 

6.27 

Alleghany  County.  _ 

6.00 

6.00 

6.00 

Scotland  County _  . 

6.78 

6.14 

9.11 

9.64 

*  $2,004  was  loaned  without  interest  and  is  not  included  in  the  averages  above. 


Where  loans  from  landlords  to  tenants  are  made  on  a  strict  business 
basis  the  rates  are  usually  higher  than  those  for  cash  loans  from  the 
regular  sources.  Tenant  borrowers  are  usually  those  who  would  other¬ 
wise  have  to  pay  from  10  per  cent  to  50  per  cent  for  their  credit  by 
buying  supplies  on  time.  But  to  offset  the  high  rate  charged  by  many 
landlords,  records  were  obtained  in  several  cases  where  loans  were  made 
from  landlord  to  tenants  without  interest. 

As  would  be  expected,  white  farmers  can  as  a  rule  get  better  terms 
than  the  colored  from  practically  all  sources.  Bates  are  lower  and  at 
the  same  time  more  uniform  in  Alleghany  County  than  in  either  ot  the 
other  districts.  The  reasons  for  this  have  been  mentioned  before.  A 
large  supply  of  loanable  funds  among  the  farmers  keeps  the  rate  lov 
and  6  per  cent  has  become  the  accepted  rate  among  all  classes. 

The  rate  on  loans  from  bankers  was  really  higher  than  the  table 
shows,  due  to  the  fact  that  92.5  per  cent  of  such  loans  required  payment 
of  interest  in  advance.  Two-thirds  of  the  loans  from  insurance  com¬ 
panies  carried  the  same  provision,  while  only  9.1  per  cent  of  the  loans 
from  landlords  to  tenants  and  4.S  per  cent  of  those  made  by  other 
individuals  had  this  requirement.  There  were  no  cases  in  which  any 
other  agencies  required  interest  in  advance. 

The  term  for  loans  made  by  the  different  lenders  of  cash  was  not 
found  to  vary  to  any  great  extent.  Practically  all  of  the  money  was 

advanced  for  periods  from  6  to  9  m0ntlis-  (See  Table  15‘) 


18 


The  Bulletin,  May,  1923 


Table  15 — Percentage  Distribution  of  Short-Term  Cash  Loans  According  to 
Term  Granted  by  Different  Agencies  in  Selected  Areas  of  North  Carolina, 
1921 


Total 

60 

Days 

90 

Days 

6 

Months 

8 

Months 

9  Months 
to 

1  Year 

More 

than 

1  Year 

Unknown 
and  In¬ 
definite 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  loans _ 

100 

3.96 

7.14 

34.11 

17.16 

17.42 

2.84 

17.37 

Individual _ _ 

100 

8.62 

1.12 

13.71 

10.08 

19.83 

9.48 

37.16 

Bank _ _ 

100 

2.25 

11.03 

48.19 

16.98 

13.56 

• 

7.99 

Life  Insurance  Co. 

100 

39.39 

60.61 

Credit  Union _ 

100 

66.41 

33.59 

Landlord _ 

100 

.45 

7.04 

45.96 

46.55 

An  attempt  was  made  to  learn  just  wliat  the  North  Carolina  farmers’ 
short-term  credit  needs  were  and  for  this  purpose  the  loans  were  classi¬ 
fied  according  to  the  purpose  for  which  money  was  borrowed.  First, 
distinction  was  made  between  those  loans  incurred  for  permanent  im¬ 
provements,  current  farm  expenses,  and  household  or  living  expenses. 
Current  farm  expenses  were  further  divided  to  show  what  part  of  the 
money  was  used  to  buy  fertilizers.  There  were  several  cases  in  which 
the  money  was  used  for  many  purposes  and  in  which  the  farmer  did 
not  know  just  how  much  had  been  used  for  each  purpose.  An  additional 
column  “unclassified”  was  added  to  care  for  such  loans.  The  table  is 
given  below. 


Table  16 — Percentage  Distribution  of  Short-Term  Cash  Loans,  According  to 
Purpose  for  which  Contracted  in  Selected  Areas  of  North  Carolina,  1921 


Total 

Fertilizer 

Improve¬ 

ments 

Other 

Farm 

Expense 

Living 

Expense 

Unclassified 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  farmers . . 

100 

10.29 

4.91 

47.04 

14.47 

23.29 

White . . . . 

100 

10.89 

5.32 

48.64 

12.31 

22.84 

Colored _  _ 

100 

3.29 

28.22 

39.84 

28.65 

All  owners _  _ 

100 

12.44 

7.42 

60.07 

8.25 

11.82 

All  tenants _  _  _ _ 

100 

6.09 

21.66 

26.59 

45.66 

Wake  County . 

100 

14.78 

38.09 

21.51 

25.62 

Alleghany  County _ 

100 

19.13 

58.64 

2.65 

19.58 

Scotland  County. . . 

100 

10.67 

59.83 

8.46 

21.04 

Among  owner-operators  much  the  greater  part  of  the  money  was  used 
for  what  are  generally  considered  as  “productive”  purposes,  current 
operating  expenses,  and  the  purchase  of  fertilizers.  Tenants  used  a 
relatively  larger  part  for  their  living  ,  expenses  as  would  be  expected. 
Much  of  the  operating  expense  is  borne  by  the  landlord,  and  in  addition 
a  tenant  usually  has  smaller  savings  with  which  to  carry  himself 
through  the  crop-growing  season. 


Farm  Credit  in  Forth  Carolina 


19 


The  biggest  demand  for  loans  seemed  to  come  in  the  months  of  March 
and  April.  Ihese  are  the  months  when  the  crops  are  planted  and  ex¬ 
penses  are  consequently  heaviest.  Table  17  shows  how  the  seasonal  de¬ 
mand  for  money  varied  according  to  the  purposes  to  which  it  was  put. 


Table  17 —Percentage  Distribution  of  Short-Term  Cash  Loans  According  to 
Season  Contracted  in  Selected  Areas  of  North  Carolina,  1921 


Total 

January 

and 

February 

March 

and 

April 

May 

to 

August 

September 

to 

December 

Per  Cent 

Per  Cent 

Per  Cnet 

Per  Cent 

Per  Cent 

All  loans _  _  _  _  _____  _____ 

100 

19.77 

41.59 

29.36 

9.28 

Fertilizer. _ _  _ _  _  __  ___ 

100 

41.03 

58.97 

Improvements _ _ _  _  _._ 

100 

78.95 

21.05 

Farm  expense  ..  ... 

100 

22.67 

48.10 

21.05 

8.18 

Living  expense  ..  _  ______ 

100 

15.62 

34.61 

45.16 

4.61 

Unclassified.  _.  _  _  _  ._  __ 

100 

29.38 

25.17 

25.00 

20.45 

The  figures  regarding  fertilizer  loans  above  are  somewhat  misleading. 
Practically  all  of  the  fertilizer  was  bought  before  the  first  of  May,  yet 
more  than  half  of  the  loans  for  its  purchase  were  made  after  that  date, 
or  to  be  more  specific,  most  of  the  loans  were  made  on  or  about  May  1. 
Farmers  who  buy  fertilizer  on  credit  frequently  get  a  5  per  cent  dis¬ 
count  on  all  hills  paid  by  the  first  of  May  and  as  a  result  those  who 
can  borrow  at  reasonable  rates  take  advantage  of  this  provision  in  the 
fertilizer  contracts.  Loans  for  living  expenses  increase  as  the  season 
advances  and  as  the  savings  of  the  farmers  become  used  up. 

Table  18  shows  how  the  length  of  term  varies  with  the  purpose. 
FAtes  with  six  months’  maturity  predominate,  especially  for  fertilizer 
loans.  The  cotton  and  tobacco  crops  are  both  harvested  within  six 
months  from  May  1.  For  improvements,  of  course,  a  longer  term  would 

he  expected. 


T \ble  18 _ Percentage  Distribution  of  Short-Term  Cash  Loans  According  to 

Terms  Required  for  Various  Purposes  in  Selected  Areas  of  North  Caro¬ 
lina,  1921 


Total 

60 

Days 

90 

Days 

6 

Months 

8 

Months 

9  Months 
to 

1  Year 

More 

than 

1  Year 

Unknown 
and  In¬ 
definite 

All  loans . 

Fertilizer - _. 

Improvements - 

Farm  expense . 

Living  expense 
Unclassified...  ... 

Per  Cent 
100 

100 

100 

100 

100 

100 

Per  Cent 
3.96 
17.57 

Per  Cent 

7.14 

2.51 

Per  Cent 
34.11 
64.86 

Per  Cent 
17.16 
12.55 

Per  Cent 
17.42 
2.51 

78.95 

16.99 

12.94 

14.69 

Per  Cent 
2.84 

Per  Cent 
17.37 

21.05 

16.32 

12.32 
29.49 

4.09 

1.34 

.17 

5.82 

17.82 

6.70 

35.30 

28.11 

29.05 

15.44 

27.47 

19.90 

6.04 

20 


The  Bulletin,  May,  1923 


MERCHANT  CREDIT 

More  than  half  (54.2  per  cent)  of  all  farmers  in  the  three  areas 
investigated  relied  on  merchandise  advances  for  some  part  of  their 
credit  needs  in  1921.  The  number  of  farmers  who  obtained  such 
advances  was  nearly  three  times  as  great  as  the  number  who  borrowed 
cash  for  short  terms.  Also  the  total  amount  of  merchant  Credit  was 
nearly  three  times  the  amount  of  short-term  cash  credit.  Table  19 
shows  to  what  extent  farmers  of  different  classes  relied  on  merchant 
credit  in  different  areas. 


Table  19 — Per  Cent  of  Fanners  Using  Merchant  Credit  in  Selected  Areas  in 

Forth  Carolina,  1921 


All  Areas 

Wake  County 
Area 

Alleghany  County 
Area 

Scotland  County 
Area 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  farmers _ _ 

54.2 

49.2 

46.6 

78.1 

White _ 

47.4 

44.9 

46.4 

63.6 

Colored _ _  _ 

72.7 

63.0 

50.0 

89.3 

Owners  .  _  __ 

42.3 

39.6 

52.1 

44.1 

White _ 

42.7 

39.3 

52.8 

46.4 

Colored _ 

40.0 

42.0 

37.5 

33.3 

Tenants _ 

64.8 

57.1 

45.2 

88.0 

White. . . 

53.6 

50.8 

41.4 

76.4 

Colored  _  . 

81.6 

70.5 

100.0 

93.6 

In  the  Wake  and  Alleghany  areas  less  than  one-lialf  of  the  farmers 
used  merchant  credit,  while  more  than  three-fourths  of  those  in  the 
Scotland  area  relied  on  it.  Colored  farmers,  as  would  usuallv  be 
expected,  depended  on  merchandise  advances  to  a  much  greater  extent 
than  the  white  farmers.  Likewise,  in  all  areas,  except  Alleghany, 
tenants  were  more  dependent  on  merchant  credit  than  owners. 

Despite  all  that  can  be  said  against  merchant  credit  in  the  South  at 
present  this  is  the  only  type  of  credit  available  to  many  farmers, 
especially  tenants  and  colored  operators.  It  is  very  expensive,  as  will 
soon  be  shown,  but  it  is  the  only  means  of  financing  available  to  farmers 
who  cannot  borrow  cash. 

The  average  size  of  farmers’  merchant-credit  advances  varied  Avidely 
in  the  three  areas  surveyed  and  among  the  different  classes  of  farmers. 
In  Scotland  County,  for  instance,  the  average  account  Avas  practically 
$400,  Avhile  in  Alleghany,  it  was  only  $55.  The  average  for  Wake 
County  was  $256,  very  close  to  the  general  average,  $262,  for  all  areas. 
White  farmers  secured  larger  advances  than  colored  farmers,  and  ac¬ 
counts  for  owners  A\Tere  larger  than  those  for  tenants,  as  Table  20  shows. 


Farm  Credit  in  jNorth  Carolina 


21 


Table  20  Average  Amount  of  Merchant  Credit  Per  Farm  in  Selected 

of  North  Carolina,  1921 


Areas 


All  farmers 
White.... 
Colored . . 
All  owners. 

White _ 

Colored . . 
All  tenants 

White _ 

Colored.. 


All  Areas 

Wake  County 
Area 

Dollars 

Dollars 

262.37 

255.98 

288.30 

265.49 

215.71 

234.29 

279.10 

324.36 

271.04 

314.89 

343.16 

380.46 

252.37 

216.53 

306.55 

225.03 

199.15 

203.64 

Alleghany  County 
Area 

Scotland  County 
Area 

Dollars 

Dollars 

55.10 

399.82 

56.86 

739.35 

31.00 

209.78 

59.14 

828.73 

60.60 

869.23 

33.33 

565.50 

38.50 

336.82 

40.33 

681.13 

27.50 

200.04 

Types  of  farming  naturally  affect  the  extent  to  which  farmers  depend 
on  merchant  credit.  In  the  Scotland  area  a  rather  highly  specialized 
type  of  farming  prevails.  Cotton  is  the  chief  source  of  farm  income. 
Most  food  and  feed  supplies  are  bought,  and  the  whole  farm  income  is 
received  during  about  two  months  in  the  year,  while  farm  expenses 
must  be  met  every  month  in  the  year.  A  large  amount  of  money  is 
spent  for  commercial  fertilizer,  which  is  usually  bought  on  time.  The 
amount  of  merchant  credit  used  is  consequently  large. 


Table  21 — Per  Cent  of  Merchant  Credit  from  Various  Sources  in  Selected 

Areas  of  North  Carolina,  1921 


All  farmers _ 

White _ 

Colored _ 

Owners _ 

Tenants _ 

Wake  County _ 

Alleghany  County 
Scotland  County.. 


Total 

Landlord 

Store 

Factory 

Agent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

100 

13.8 

67.4 

15.8 

2.9 

100 

6.4 

67.3 

22.4 

3.9 

100 

31.45 

67.69 

.16 

.69 

100 

1.00 

73.69 

19.40 

5.89 

100 

22.17 

63.26 

13.47 

10.91 

100 

9.63 

76.07 

9.64 

4.65 

100 

4  41 

95.59 

100 

20.18 

53.38 

25.43 

1.01 

In  the  Wake  area  there  is  more  diversification  of  crops.  Both  cotton 
and  tobacco  are  money  crops.  More  grain  is  grown  and  less  of  the 
farm  food  and  feed  supply  bought.  The  farm  income  from  the  two 
crops  of  cotton  and  tobacco  is  distributed  over  a  number  of  months  in 
the  year. 

.  In  the  Alleghany  area  the  average  amount  of  merchant  credit  per 
farmer  is  very  small,  because  farming  is  largely  of  the  self-sufficing  type. 
Most  food  and  feed  supplies  are  produced  on  the  farms.  Practically  no 


22 


The  Bulletin,  May,  1923 


fertilizer  is  bought.  Farmers  meet  their  store  accounts  largely  with 
eggs,  chickens,  turkeys,  and  butter,  which  form  a  rather  continuous  in¬ 
come  throughout  the  year. 

Farmers  in  the  three  areas  surveyed  received  their  merchant  credit 
from  four  sources:  from  stores;  from  factories  direct;  from  agents 
handling  goods  for  factories;  and,  in  the  case  of  tenant  farmers,  from 
landlords.  Table  21  shows  the  percentages  of  credit  furnished  by  each 
of  these  four  sources. 

Stores  were  everywhere  the  chief  source  of  merchant  credit.  White 
farmers  received  a  considerable  proportion  of  their  merchant  credit 
from  factories,  but  colored  farmers  received  practically  no  advances 
from  this  source.  Landlord  advances  were  made  mainly  to  colored 
tenants,  white  tenants  depending  very  little  on  this  source.  The  presence 
of  landlord  commissaries  and  the  large  use  of  factory  credit  in  the 
Scotland  area  cut  down  somewhat  the  need  of  accommodation  from 
stores.  But  even  there,  stores  furnish  more  merchant  credit  than  all 
other  sources  combined.  The  store  is  the  most  convenient  source  of 
credit  for  the  farmer.  The  merchant  can  usually  afford  to  take  greater 
risks  than  the  banker  because  he  has  the  profit  from  his  sale  to  consider, 
whereas  the  banker’s  only  profit  is  from  interest  received. 

Merchant  credit  is  sometimes  extended  without  tangible  security  on 
open  account,  personal  note,  or  endorsed  note.  In  other  cases  creditors 
require  chattel  mortgage,  crop  lien,  or  a  combination  of  both  of  these 
forms  of  security.  Table  22  shows  the  percentages  of  merchant  credit 
extended  by  different  agencies  on  different  kinds  of  security. 


Table  22 — Percentage  Distribution  According  to  Form  of  Security  for  Various 
Sources  of  Merchant  Credit  in  Selected  Areas  of  North  Carolina,  1921 


Total 

Open 

Personal 

Note 

Endorsed 

Note 

Chattel 

Crop 

Lien 

Combin  - 
ation 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  sources _ .  -  -  -  _ .  _ 

100.00 

40.90 

6. 15 

3.47 

1.50 

33.62 

14.35 

Landlords.-  .  .  .  . 

100.00 

4.60 

.61 

3.25 

84.19 

7.33 

Store  -------  -.  - 

100.00 

54.19 

2.89 

1.24 

1.33 

20.99 

19.34 

Factory _ _ _  _ 

100.00 

12.52 

21.15 

16.69 

49.64 

Agent  -  .  - . . - _ 

100.00 

59.08 

25.79 

5.14 

9.99 

Two-fifths  of  all  merchant  credit  was  extended  on  open  book  account, 
and  one-third  on  crop  liens.  Stores  and  manufacturer’s  agents  extended 
more  than  half  of  their  credit  on  open  account.  Factories,  on  the  other 
hand,  required  security  and  took  crop  liens  as  security  on  nearly  one- 
half  of  the  credit  extended.  Landlords’  chief  security  was  the  crop 
lien,  owing  to  the  operation  of  the  State  Landlord  Lien  Law. 

Table  23  shows  how  the  type  of  security  accepted  on  merchant  credit 
varied  with  the  different  classes  and  in  the  different  areas. 


Farm  Credit  in  North  Carolina 


23 


TABnE/3~f e™n*age  of  Security  of  Various  Types  on  Merchant  Credit  for 
Different  Classes  of  Farmers  in  Selected  Areas  of  North  Carolina ,  1921 


All  Types 
of  Security 

All  farmers. 

Per  Cent 

100.00 

Owners  .. 

100.00 

Tenants 

100.00 

White.... 

100.00 

Colored . . 

100.00 

Wake  County 

100.00 

Alleghany  County... 

100.00 

Scotland  County 

100.00 

Open 

Personal 

Note 

Endorsed 

Note 

Per  Cent 

Per  Cent 

Per  Cent 

40.90 

6.15 

3.47 

55.45 

10.75 

7.78 

31.38 

3.14 

.66 

47.64 

7.87 

4.76 

24.70 

2.03 

.37 

50.69 

9.67 

1.42 

93.25 

1.29 

23.41 

1.92 

6.41 

* 

Chattel 

Mortgage 

Crop 

Liens 

Combin¬ 

ation 

Per  Cent 

Per  Cent 

Per  Cent 

1.50 

33.62 

14.35 

1.61 

13.60 

10.79 

1.43 

46.71 

16.66 

1.12 

29.37 

9.21 

2.40 

43.79 

26.64 

1.73 

14.73 

5.45 

21.75 

1.32 

61.36 

5.57 

Owners  were  granted  more  tlian  half  their  merchant  credit  on  open 
account,  while  tenants  depended  on  crop  liens  for  nearly  one-half  of 
what  they  received.  Among  colored  farmers  crop  liens  were  the  most 
common  form  of  security,  comprising  43  per  cent  of  all  advances 
received.  White  farmers  gave  crop  liens  for  less  than  one-third  of  the 
credit  obtained.  In  the  Wake  area  about  half  of  the  merchant  credit 
was  extended  on  open  account;  in  the  Alleghany  area  more  than  90 
per  cent,  and  in  the  Scotland  area,  less  than  one-fourth  of  the  total. 
The  crop  lien  was  the  outstanding  form  of  security  in  the  Scotland  area. 

One  of  the  most  difficult  things  to  determine  in  this  investigation  is 
a  fact  which  is  also  one  of  the  most  interesting  of  all  considered,  namely, 
the  interest  rate  paid  for  merchant  credit  advances.  Owing  to  the 
extended  discussion  which  this  point  has  raised  in  all  sections,  an 
attempt  was  made  to  arrive  at  an  average  figure  which  will  be  as  nearly 
accurate  as  possible. 


Table  24 — Number  of  Farmers  Using  Merchant  Credit,  Number  and  Per  Cent 
Not  Knowing  Difference  Between  Cash  and  Time  Price  in  Selected  Areas 
of  North  Carolina,  1921 


Farmers 

F  armers 

Farmers  not 

F  armers 

Farmers  not 

Using 

Knowing 

Knowing 

Knowing 

Knowing 

Merchant 

Time 

Time 

Time 

Time 

Credit 

Price 

Price 

Price 

Price 

Number 

Number 

Number 

Per  Cent 

Per  Cent 

All  farmers  --  --  - 

433 

238 

195 

54.9 

45.1 

White  _ 

278 

164 

114 

59.0 

41.0 

Colored -  -  - 

155 

74 

81 

47.8 

52.2 

All  owners 

161 

94 

67 

58.4 

41.6 

All  tenants  -  -  _  . 

272 

144 

128 

47.9 

52.1 

Wake  County  .  _  .. 

246 

155 

91 

63.1 

36.9 

Alleghany  County -  - 

70 

32 

38 

45.7 

54.3 

Sen+land  Conntv 

117 

51 

66 

44.1 

55.9 

24 


The  Bulletin,  May,  1923 


Each  farmer  interviewed,  who  had  bought  goods  on  time,  was  asked 
what  lie  had  paid  for  those  goods,  and  was  also  asked  if  he  knew  what 
cash  prices  were  for  goods  bought  at  the  same  place  and  at  the  same 
time.  Wherever  farmers  had'  store  hills  available  these  were  inspected 
and  the  charge  for  time  noted.  Thus  the  total  excess  of  time  price  over 
cash  price  and  the  per  cent  which  this  amount  constituted  of  the  total 
amount  of  credit  extended  was  calculated.  Merchants  were  interviewed 
so  that  some  check  would  be  available  regarding  all  figures. 

Almost  half  (43  per  cent)  of  the  farmers,  however,  did  not  know 
what  they  had  paid  for  credit  so  extended.  Table  24  shows  how  this 
lack  of  information  varies  for  the  different  areas. 

The  information  furnished  by  238  of  the  433  farmers  using  merchant 
credit,  as  to  the  excess  of  time  prices  over  cash  prices,  was  used  as  a 
basis  for  Table  25  to  determine  the  average  rates  of  interest  paid  to  the 
several  agencies  furnishing  merchant  credit  in  the  different  areas.  These 
rates  were  carefully  calculated,  taking  into  account  the  actual  length 
of  time  during  which  merchant  accounts  ran.  The  rates  given  in  the 
table  express  the  charge  on  the  basis  of  yearly  interest  rates.  They  are 
safely  conservative. 


Table  25 — Interest  Fate  Charged  for  Merchant  Credit  tnj  Various  Agencies  in 

Selected  Areas  of  Forth  Carolina,  1921 


Total 

Landlords 

Store 

Factory 

Agent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  farmers _  _  _  _  __ 

22.3 

21.5 

26.6 

14.2 

17.0 

White  .  _  _  _ 

17.3 

16.0 

21.8 

12.8 

16.7 

Colored..  .  _  ______ 

30.1 

26.4 

32.2 

14.5 

25.4 

Owners  _  _  _  __ 

21.1 

25.3 

15.1 

16.5 

Tenants.  _  _  _  __  __  _  _ 

22.8 

24.1 

26.4 

13.4 

25.7 

Wake  County  _ _  __  _  _  ...  ... 

25.1 

24.0 

26.3 

17.4 

18.7 

Alleghany  County -  _  _ _ _  _  _ 

23.6 

23.6 

Scotland  County  ____  __  _ 

20.2 

19.1 

34.3 

13.3 

14.0 

The  average  rate  for  the  State  as  calculated  in  this  way  was  22.3  per 
cent.  Credit  from  local  stores  was  the  most  expensive,  costing  an  aver¬ 
age  of  26.6  per  cent.  Landlords  came  next  in  order,  with  a  rate  of  21.5 
per  cent.  Eactories  and  their  agents  are  much  lower,  with  rates  of  14.2 
and  17.0  per  cent  respectively.  Colored  farmers  paid  much  higher  rates 
than  white  farmers,  because  such  a  large  percentage  of  the  merchant 
credit  received  by  colored  farmers  is  for  food  supplies,  which  are  bought 
on  the  installment  plan  over  a  long  period  of  time.  A  full  year’s  in¬ 
terest  is  charged  on  all  purchases,  though  many  of  these  purchases  are 
made  during  the  last  few  weeks  before  the  hill  is  paid. 

Fertilizer  and  “living  expenses”  are  the  chief  purposes  for  which 
merchant  credit  is  extended.  (Table  26.)  Nearly  three-fourths  of  all 
merchant  credit  is  for  these  two  purposes,  more  than  two-fifths  of  the 


25 


Farm  Credit  in  Xorth  Carolina 

total  being  for  fertilizer.  The  percentage  for  living  expenses  was  very 
high  for  colored  farmers,  and  relatively  high  for  all  tenants.  The 
very  large  time  purchases  of  fertilizer  in  the  Wake  area  were  due  to 
the  raising  of  tobacco  in  that  county.  The  proportion  for  living  ex¬ 
penses  is  very  high  in  the  Scotland  area  where  little  foodstuff  is  grown 
on  the  farms. 


Table  26 — Per  Cent  of  Merchant  Credit  for  Various  Purposes  by  Different 
Classes  in  Selected  Areas  of  Xorth  Carolina,  1921 


Total 

Fertilizer 

Farm 

Expense 

Living 

E  xpense 

Unclassified 

All  farmers  _ 

Per  Cent 

100.00 

Per  Cent 
43.68 

Per  Cent 
4.65 

Per  Cent 
28.01 

Per  Cent 
23.64 

White. .  _  _  _  _ 

100.00 

53.58 

4.84 

15.66 

25.91 

Colored _  . 

100.00 

19.98 

4.21 

57.59 

18.21 

All  owners. .  _ _  _ _ 

100.00 

63.26 

4.47 

13.29 

18.98 

All  tenants ..  ..  ..... 

100.00 

30.88 

4.78 

37.64 

26.69 

Wake  County  -  ...  _  ..  .. 

100.00 

50.29 

1.92 

19.00 

28.77 

Alleghany  County 

100.00 

5.66 

55.85 

38.49 

Scotland  County. _  ..  _ 

100.00 

38.40 

8.25 

37.82 

15.51 

CONCLUSION 


The  foregoing  facts  indicate  that  credit  conditions  among  Xorth 
Carolina  farmers  are  in  much  need  of  improvement.  1  he  farm  mort¬ 
gage  situation  is  better  than  that  for  other  kinds  of  credit  and,  further¬ 
more,  seems  to  be  steadily  improving.  The  Federal  Land  Bank  of 
Columbia,  S.  C.,  is  gradually  taking  over  land  mortgage  loans  needed 
for  longer  periods  of  time,  and  in  addition,  out-of-state  financial  institu¬ 
tions  are  now  offering  such  loans  at  reasonable  rates. 


Credit  advances  for  current  expenses  are  those  in  which  the  greatest 
room  for  improvement  exists.  By  far  the  larger  part  of  such  advances 
are  obtained  through  the  purchase  of  supplies  on  time,  a  practice  which 
has  long  been  recognized  as  extremely  costly.  Table  27  summarizes 
figures  regarding  the  part  played  by  all  sources  for  short-term  credit 

advances. 


Table 


27 — Percentage 
Sources 


of  Total  Short-Term  Credit  Obtained  front 
in  Selected  Areas  of  Xorth  Carolina,  1921 


Different 


All 

Sources 

Banks 

Landlords 

Other 

Indi¬ 

viduals 

Factories 

and 

Agents 

Stores 

All 

Others 

All  areas  _  __ 

Per  Cent 

100 

100 

100 

100 

Per  Cent 
15.6 

15.5 

40.1 

9.4 

Per  Cent 

11.7 

9.1 

1.2 

18.6 

Per  Cent 
7.6 

7.2 

32.0 

1.8 

Per  Cent 
14.0 
10.6 

Per  Cent 
50.3 
56.2 

26.7 

46.8 

Per  Cent 
0.8 

1.4 

Wnlre  Cmintv  -  - 

Alleghany  County  --- 
Scotland  County - 

23.4 

- - 

26 


The  Bulletin,  May,  1923 


Stores  apparently  handle  more  of  such  business  than  all  other  agencies 
combined,  while  banks  carry  less  than  one-sixth  of  the  total.  A  large 
proportion  of  the  credit  is  supplied  by  fertilizer  factories  and  their 
local  agents,  through  the  sale  of  fertilizer  to  farmers  on  time.  That  the 
farmers  fail  to  obtain  needed  short-term  credit  direct  from  banks  con¬ 
stitutes  a  handicap  to  agriculture  in  the  State,  since,  as  shown  in 
Table  28,  the  rate  on  such  loans  is  materially  lower  than  on  short-term 
loans  from  all  other  sources. 


Table  28 — Average  Interest  Rate  Charged  for  Advances  of  All  Types  and  from 
Selected  Sources  in  Selected  Areas  of  North  Carolina ,  1921 


All 

Areas 

Wake 

County 

Area 

Alleghany 

County 

Area 

Scotland 

County 

Area 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  loans _  _  _  _  _  _  ..  _  _  _ _ 

11.3 

10.6 

8.4 

18.3 

Mortgage  loans _  __  .  _  _  _  _ _ 

6.1 

6.2 

6.0 

6.0 

Short-term  cash  loans _  _ _ _ _  __ 

6.3 

6.3 

6.0 

6.9 

From  banks _  ...  .  .  ...............  .... 

6.2 

6.3 

6.0 

6.1 

Time  purchase ...  .  _  _  .  _.  .. 

22.3 

25.1 

23.6 

20.2 

Stores . .  .  ..  _  ..  _ _  . 

26.6 

26.3 

23.6 

34.3 

Tenant  from  landlord _  _  .  _ _ 

21.5 

24.0 

19.1 

Manufacturer _  .  .  ..  _ 

14.2 

17.4 

13.3 

• 

The  cost  of  credit  from  stores  is  seen  to  be  more  than  25  per  cent 
when  calculated  on  the  basis  of  a  yearly  interest  rate,  while  banks  charge 
little  more  than  6  per  cent.  Farmers  would  profit  greatly  if  they  could 
place  themselves  in  position  to  borrow  from  banks  and  pay  their  bills 
with  cash.  Merchants  would  be  benefited  since  they  could  then  give 
their  attention  strictly  to  merchandising  and  avoid  the  risk  of  loss  which 
they  now  assume.  Bankers  would  also  profit  due  to  the  resulting  im¬ 
provement  in  farmers'  financial  condition  and  the  increased  business 
which  these  farmers  would  give  the  banks.  The  question  arises,  how¬ 
ever,  as  to  whether  farmers  can  get  further  credit  from  banks.  Why 
do  they  now  count  on  stores  to  such  an  extent  for  accommodation? 

Many  ask  for  credit  from  stores  out  of  habit  and  do  not  realize  how 
high  the  charges  are.  There  are  others,  however,  who  cannot  obtain 
credit  from  banks.  This  is  often  due  to  the  fact  that  no  contact  has 
been  established  and  the  farmer’s  credit  rating  has  not  been  determined. 
Such  cases  must,  of  course,  be  considered  separately  from  those  in  which 
farmers  are  known  to  be  poor  risks. 

Banks  throughout  the  areas  surveyed  seemed  to  prefer  character  and 
general  business  ability  over  any  tangible  security  in  making  loans. 
Table  29  shows  that  less  than  5  per  cent  of  the  money  loaned  by  banks 
was  secured  by  collateral  of  any  kind. 


Farm  Credit  in  North  Carolina 


27 


Table  29 — Percentage  Distribution  According  to  Security  Demanded  by  Vari¬ 
ous  Agencies  in  All  Forms  of  Short-Term  Loans  in  Selected  Areas  of 
North  Carolina,  1921 


Total 

Open 
Account 
and  Per¬ 
sonal  Note 

Endorsed 

Note 

Chattel 

Mortgage 

Crop 

Lien 

Stocks, 

Bonds, 

Etc. 

Combined 
Crop  and 
Chattel 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

All  sources  -  .  _ 

100 

48.1 

12.0 

2.1 

26.4 

0.6 

10.8 

Banks. . 

100 

49.8 

45.8 

1.7 

0.6 

2.1 

Landlords 

100 

7.9 

2.9 

82.0  * 

7.2 

Other  individuals 

100 

61.1 

29.6 

5.4 

3.9 

Factories  and  Agents. 

100 

41.8 

14.1 

0.8 

41.7 

1.6 

Stores _ 

100 

57.2 

1.1 

1.3 

21.0 

19.4 

All  others  _ 

100 

18.9 

37.5 

43.6 

Some  of  this  may  be  due  to  the  fact  that  collections  can  usually  he 
made  from  a  man  who  has  property,  whether  that  property  is  pledged 
or  not.  But  banks  cannot  afford  to  take  chances  and  the  chief  reason 
for  the  preponderance  of  loans  on  personal  and  endorsed  notes  is  the 
fact  that  the  borrowers  are  known  to  the  hank’s  officers.  A  reputation 
for  thrift,  industry,  and  reliability  is  the  best  possible  asset  for  a  man 
wanting  credit. 

The  first  step  then  in  giving  farmers  better  credit  is  to  build  up  better 
contacts.  This  will  require  cooperation  of  county  agents,  extension 
men,  farm  organizations  and  the  bankers  themselves.  Bankers  in  some 
sections  have  overcome  much  of  this  condition  by  having  at  their  banks 


exhibits  which  attract  farmers.  Farmers  so  drawn  to  the  banks  often 
become  friends  and  many  times  become  customers.  But  the  banks  can¬ 
not  do  it  all.  Effort  toward  a  better  acquaintance  is  necessary  on  the 
part  of  farmers.  Frankness  regarding  their  business  affairs  is  essential. 

In  some  sections  of  the  State  small  farmers  who  did  not  have  suffi¬ 
cient  assets  to  give  them  very  high  individual  ratings,  have  combined  to 
form  “credit  unions.”  These  unions  are  cooperative  societies  which 
are  specially  chartered  under  State  law  by  the  State  Division  of  Markets. 
They  may  be  formed  by  seven  or  more  farmers,  who  put  their  savings  in 
a  common  fund  and  who  can  in  turn  borrow  front  the  fund  whene\ei 
they  need  money  for  farming  expenses.  If  the  fund  is  not  large  enough 
to  supply  all  requests  for  loans,  the  credit  union  borrows  additional 
funds  from  a  bank  on  its  own  note,  supported  by  the  notes  of  members 
who  have  borrowed  from  the  credit  union.  The  credit  union  can  obtain 
better  term?  than  any  one  member  because  it  offers  the  bank  better 
security  and  because  the  loan  will  represent  a  more  substantial  sum. 
If  the  savings  amount  to  more  than  members  wish  to  borrow,  the  fund 
may  be  deposited  in  a  bank  at  interest  or  may  be  invested  m  certain 
wavs  prescribed  by  law.  Members  pa y  low  rates  of  interest  for  then 
loans  and  receive  interest  for  their  savings  which  are  deposited,  ^ome- 


28 


The  Bulletin,  May,  1923 


times  such  unions  have  had  trouble  getting  started  because  their  officers 
lacked  business  training,  but  as  a  general  rule  they  have  proved  to  be  a 
decided  benefit  to  the  communities  where  they  exist. 

One  more  method  of  cutting  down  on  the  large  store  account,  con 
sists  in  increasing  the  supply  of  garden  truck  and  feeds  grown  on  th 
farm.  Even  if  cereals  and  hay  might  not  be  profitable  as  crops  fo 
market,  they  can  be  used  to  advantage  for  consumption  on  the  farm.  It 
Alleghany  County  where  farming  Avas  more  nearly  self-sufficing,  th 
stores  played  a  much  smaller  part  in  furnishing  accommodations  than  ir 
either  of  the  other  areas. 

Better  use  of  legumes  and  livestock  will  also  help  some  to  reduce  th 
need  for  large  credit  extensions.  Fertilizer  Avas  the  chief  item  for  which 
merchant  credit  Avas  required.  Livestock  and  legumes  A\dll  help  either 
to  reduce  the  amount  spent  for  this  purpose  or  to  make  the  same  amoun 
produce  larger  returns. 


UNCPS  51499 


